A blockchain is a digital ledger of transactions maintained by a network of computers in a way that makes it difficult to hack or alter. The technology offers a secure way for individuals to deal directly with each other, without an intermediary like a government, bank or other third party.
The growing list of records, called blocks, is linked together using cryptography. Each transaction is independently verified by peer-to-peer computer networks, time-stamped and added to a growing chain of data. Once recorded, the data cannot be altered.
While popularized with the growing use of Bitcoin, Ethereum and other cryptocurrencies, blockchain technology has promising applications for legal contracts, property sales, medical records and any other industry that needs to authorize and record a series of actions or transactions.
A cryptocurrency (or “crypto”) is a digital asset that can circulate without the need for a central monetary authority such as a government or bank. Instead, cryptocurrencies are created using cryptographic techniques that enable people to buy, sell or trade them securely.
Bitcoin and most other cryptocurrencies are supported by a technology known as blockchain, which maintains a tamper-resistant record of transactions and keeps track of who owns what. The creation of blockchains addressed a problem faced by previous efforts to create purely digital currencies: preventing people from making copies of their holdings and attempting to spend it twice.
Individual units of cryptocurrencies can be referred to as coins or tokens, depending on how they are used. Some are intended to be units of exchange for goods and services, others are stores of value, and some can be used to participate in specific software programs such as games and financial products.
One common way cryptocurrencies are created is through a process known as mining, which is used by Bitcoin. Mining can be an energy-intensive process in which computers solve complex puzzles in order to verify the authenticity of transactions on the network. As a reward, the owners of those computers can receive newly created cryptocurrency. Other cryptocurrencies use different methods to create and distribute tokens, and many have a significantly lighter environmental impact.
For most people, the easiest way to get cryptocurrency is to buy it, either from an exchange or another user.
It’s important to remember that Bitcoin is different from cryptocurrency in general. While Bitcoin is the first and most valuable cryptocurrency, the market is large.
More than 19,500 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to proliferate. The total value of all cryptocurrencies on May 26, 2022, was about $1.2 trillion, having fallen substantially from an all-time high above $2.9 trillion late in 2021.
While some of these have total market valuations in the hundreds of billions of dollars, others are obscure and essentially worthless.
Using the Bitcoin system as an example, here’s how blockchain — also known as distributed ledger technology — works:
The purchase and sale of Bitcoin is entered and transmitted to a network of powerful computers, known as nodes.
This network of thousands of nodes around the world vie to confirm the transaction using computer algorithms. This is known as Bitcoin mining. The miner who first successfully completes a new block is rewarded with Bitcoin for their work. These rewards are paid with a combination of newly minted Bitcoin and network fees, which are passed on to the buyer and seller. The fees can rise or fall depending on the volume of transactions.
After the purchase is cryptographically confirmed, the sale is added to a block on the distributed ledger. The majority of the network must then confirm the sale.
The block is permanently chained to all previous blocks of bitcoin transactions, using a cryptographic fingerprint known as a hash, and the sale is processed.
The concept of blockchain technology first appeared in academic papers from 1982, in a dissertation discussing “the design of a distributed computer system that can be established, maintained, and trusted by mutually suspicious groups.” But it was a 2008 paper by the pseudonymous Satoshi Nakamoto titled “Bitcoin: A Peer-to-Peer Electronic Cash System” that brought an academic theory into real-world use.
Blockchain pros and cons:
Here are some of the pros and cons of how blockchain technology works when applied to cryptocurrencies:
Pros Decentralization:
While the U.S. dollar is issued by the Federal Reserve, no government agency issues or controls Bitcoin and other cryptocurrencies. This also means that the ability of any one government or agency to determine the fate of a public blockchain is eliminated. The lack of intermediaries reduces cost, as the fees associated with third-party transactions also are eliminated. Another byproduct of how blockchain works is time efficiency — the blockchain is open for business 24 hours a day, 365 days a year, unlike banks and other intermediaries.
Transparency plus anonymity:
All transactions on the Bitcoin blockchain are recorded on computers across the network. Transactions are completely transparent because the address and transaction history of Bitcoin wallets, which hold the cryptocurrency, are publicly viewable, but the owners of each wallet connected to those public addresses are anonymous and not recorded.
Accuracy and security:
Because the transaction involves little human interaction, there is a lower risk of error. Each transaction must be confirmed and recorded by a majority of the network nodes, which makes it vanishingly difficult to manipulate or alter information. This also prevents anyone from spending a Bitcoin more than once.
Public and private blockchain applications
Blockchain technology creates efficiencies that potentially extend far beyond digital currencies. For example, Bitcoin is on a public blockchain network, meaning anyone can join. But many applications for business can be created on private blockchain networks, where organizations can control who joins.
Blockchain supply chain:
Companies such as IBM Blockchain are already providing private network solutions using blockchain technology to more accurately track product supply chains. For example, companies can use the technology quickly find out where recalled food products have been shipped and sold.
Health care records: Deloitte Consulting has suggested that a nationwide blockchain network for electronic medical records “may improve efficiencies and support better health outcomes for patients.
Smart contracts:
With blockchain technology, contract terms can automatically be changed or updated based on hitting a predetermined set of conditions.
Digital elections: Some developers are working on blockchain technology to be applied to elections.
Property transactions:
Proponents say blockchain technology can be applied to a wide range of asset sales, be it real estate, autos or investment portfolios.
Blockchain in Supply Chain:
When a company is formulating a blockchain solution to fill its supply chain needs, inevitably the decision must be made as to what type of blockchain is best suited for the project. Therefore, it is essential to have a clear understanding of the options available for blockchain structures. Not all types of blockchains are appropriate for supply chain information management.
Permission less vs. Permissioned Blockchains:
All types of blockchains can be characterized as permission less, permissioned, or both. Permission less blockchains allow any user to pseudo-anonymously join the blockchain network (that is, to become “nodes” of the network) and do not restrict the rights of the nodes on the blockchain network.
Conversely, permissioned blockchains restrict access to the network to certain nodes and may also restrict the rights of those nodes on that network. The identities of the users of a permissioned blockchain are known to the other users of that permissioned blockchain.
Permission less blockchains tend to be more secure than permissioned blockchains, because there are many nodes to validate transactions, and it would be difficult for bad actors to collude on the network. However, permission less blockchains also tend to have long transaction processing times due to the large number of nodes and the large size of the transactions.
On the other hand, permissioned blockchains tend to be more efficient. Because access to the network is restricted, there are fewer nodes on the blockchain, resulting in less processing time per transaction.
Like so many things, pros come with cons, and the reduced processing time in permissioned blockchains is no exception: the centralization of permissioned blockchains to some central authority (be it a government, a company, a trade group, or some other entity or group that is granting the permission to nodes and creating the restrictions of the blockchain) makes it a less secure system that is more prone to traditional hacking vulnerabilities. The fewer nodes there are on a blockchain, the easier it is for bad actors to collude, so private blockchain administrators must ensure nodes adding and verifying blocks are highly trusted.
There are four types of blockchain structures:
1. Public Blockchains:
Public blockchains are permission less in nature, allow anyone to join, and are completely decentralized. Public blockchains allow all nodes of the blockchain to have equal rights to access the blockchain, create new blocks of data, and validate blocks of data.
To date, public blockchains are primarily used for exchanging and mining cryptocurrency. You may have heard of popular public blockchains such as Bitcoin, Ethereum, and Litecoin. On these public blockchains, the nodes “mine” for cryptocurrency by creating blocks for the transactions requested on the network by solving cryptographic equations. In return for this hard work, the miner nodes earn a small amount of cryptocurrency. The miners essentially act as new era bank tellers that formulate a transaction and receive (or “mine”) a fee for their efforts.
2. Private (or Managed) Blockchains:
Private blockchains, which may also be referred to as managed blockchains, are permissioned blockchains controlled by a single organization. In a private blockchain, the central authority determines who can be a node. The central authority also does not necessarily grant each node with equal rights to perform functions. Private blockchains are only partially decentralized because public access to these blockchains is restricted. Some examples of private blockchains are the business-to-business virtual currency exchange network Ripple and Hyperledger, an umbrella project of open-source blockchain applications.
Both private and public blockchains have drawbacks - public blockchains tend to have longer validation times for new data than private blockchains, and private blockchains are more vulnerable to fraud and bad actors. To address these drawbacks, consortium and hybrid blockchains were developed.
3. Consortium Blockchains:
Consortium blockchains are permissioned blockchains governed by a group of organizations, rather than one entity, as in the case of the private blockchain. Consortium blockchains, therefore, enjoy more decentralization than private blockchains, resulting in higher levels of security. However, setting up consortiums can be a fraught process as it requires cooperation between a number of organizations, which presents logistical challenges as well as potential antitrust risk (which we will examine in an upcoming article). Further, some members of supply chains may not have the needed technology nor the infrastructure to implement blockchain tools, and those that do may decide the upfront costs are too steep a price to pay to digitize their data and connect to other members of the supply chain.
A popular set of consortiums blockchain solutions for the financial services industry and beyond has been developed by the enterprise software firm R3. In the supply chain sector, CargoSmart has developed the Global Shipping Business Network Consortium, a not-for-profit blockchain consortium which aims to digitalize the shipping industry and allow maritime industry operators to work more collaboratively.
4. Hybrid blockchains:
Hybrid blockchains are blockchains that are controlled by a single organization, but with a level of oversight performed by the public blockchain, which is required to perform certain transaction validations. An example of a hybrid blockchain is IBM Food Trust, which was developed to improve efficiency throughout the whole food supply chain. We will discuss IBM Food Trust in more detail in an upcoming article in this series. Blockchain Types for Supply Chain Use Because members of supply chains have important data privacy and competition considerations, blockchain for supply chain requires some extent of permissioned functionality, which exists in private, consortium and hybrid models of blockchain. It is therefore not surprising that Business wire recently reported that consortium and hybrid blockchain types are expected to grow at the highest rate in the supply chain market from 2020-2026.2 Future articles in this “Blockchain in Supply Chain” series will explore some of the popular consortium and hybrid blockchains being implemented in the supply chain sector.
Our team proudly look forward to hear from you:
Phone
+66(0) 2-207-2659
Location
29th Level Central World Offices 999/9 Rama 1 Road Pthumwan District Bangkok Thailand 10330
info@Alloncoin.com